Aim/Purpose: Despite the fact that the plethora of studies demonstrate the positive impact of information technology (IT) capabilities on SMEs performance, the understanding of underlying mechanisms through which IT capabilities affect the firm performance is not yet clear. This study fills these gaps by explaining the roles of absorptive capacity and corporate entrepreneurship. The study also elaborates the effect of IT capability dimensions (IT integration and IT alignment) upon the SMEs performance outcomes through the mediating sequential process of absorptive capacity and corporate entrepreneurship. Methodology: This study empirically tests a theoretical model based on the Dynamic Capability View (DCV), by using the partial least square (PLS) technique with a sample of 489 manufacturing SMEs in Pakistan. A survey is employed for the data collection by following the cluster sampling approach. Contribution: This research contributes to the literature of IT by bifurcating the IT capability into two dimensions, IT integration and IT alignment, which allows us to distinguish between different sources of IT capabilities. Additionally, our findings shed the light on the dynamic capability view by theoretically and empirically demonstrating how absorptive capacity and corporate entrepreneurship sequentially affect the firms' performance outcomes. At last, this study contributes to the literature of SMEs by measuring the two levels of performance: innovation performance and firm performance. Findings: The results of the analysis show that the absorptive capacity and the corporate entrepreneurship significantly mediate the relationship between both dimensions of IT capability and performance outcomes.